System and method for using diversification spreading for risk offset

Abstract

A computer-implemented method for analyzing a risk offset associated with a portfolio including a plurality of products traded on an exchange is disclosed. The method includes comparing a first market response of a first product in the portfolio with a second market response of a second product in the portfolio where the first and second market responses result from a change in market data, calculating an offsetting effect between the first market response and the second market response where the first and second market responses are substantially different responses to the same change in the market data, determining a diversification spread based on the offsetting effect derived between the first product and the second product, calculating a diversification spread credit based on the determined diversification spread, and adjusting a margin requirement for the portfolio based on the diversification spread credit.

We claim: 
     
         1 . An a method comprising:
 receiving data indicative of a plurality of products;   defining, by a processor, diversification groups based on correlation levels within the plurality of products;   performing, using the processor, an analysis of the diversification groups, wherein the analysis of the diversification groups is performed at a computation speed faster that of analysis of the plurality of products individually;   determining, by the processor, a diversification spread credit based on the diversification spread of the diversification groups; and   calculating, by the processor, a margin requirement based on the diversification spread credit.   
     
     
         2 . The method of  claim 1 , further comprising:
 evaluating the plurality of products with respect to one another; and   assigning the correlation level to each of the plurality of products.   
     
     
         3 . The method of  claim 1 , further comprising:
 assigning a diversification class based on a product sector represented by each of the plurality of products.   
     
     
         4 . The method of  claim 3 , wherein the diversification spread credit and the margin requirement are further based on the diversification class. 
     
     
         5 . The method of  claim 1 , further comprising:
 decreasing the margin requirement when the diversification spread credit indicates a higher degree of correlation.   
     
     
         6 . The method of  claim 1 , further comprising:
 increasing the margin requirement when the diversification spread credit indicates a lower degree of correlation.   
     
     
         7 . The method of  claim 1 , further comprising:
 identifying a first group and a second group from the diversification groups, wherein a first diversification spread credit is assigned to the first group and a second diversification spread credit is assigned to the second group, and the first diversification spread credit is greater than the second diversification spread credit.   
     
     
         8 . The method of  claim 1 , wherein the diversification spread credit is less than a maximum spread credit defined by a point of diminishing returns. 
     
     
         9 . A non-transitory computer readable medium containing instructions that, when executed by a computer, are configured to:
 receive data indicative of a plurality of products;   define diversification groups based on correlation levels within the plurality of products;   perform an analysis of the diversification groups, wherein the analysis of the diversification groups is performed using fewer computation resources than for analysis of the plurality of products individually;   determine a diversification spread credit based on the diversification spread of the diversification groups; and   calculate a margin requirement based on the diversification spread credit.   
     
     
         10 . The non-transitory computer readable medium of  claim 9 , the instructions further configured to:
 evaluate the plurality of products with respect to one another; and   assign the correlation level to each of the plurality of products.   
     
     
         11 . The non-transitory computer readable medium of  claim 9 , the instructions further configured to:
 assign a diversification class based on a product sector represented by each of the plurality of products.   
     
     
         12 . The non-transitory computer readable medium of  claim 11 , wherein the diversification spread credit and the margin requirement are further based on the diversification class. 
     
     
         13 . The non-transitory computer readable medium of  claim 9 , the instructions further configured to:
 decrease the margin requirement when the diversification spread credit indicates a higher degree of correlation.   
     
     
         14 . The non-transitory computer readable medium of  claim 9 , the instructions further configured to:
 increase the margin requirement when the diversification spread credit indicates a lower degree of correlation.   
     
     
         15 . The non-transitory computer readable medium of  claim 9 , the instructions further configured to:
 identify a first group and a second group from the diversification groups, wherein a first diversification spread credit is assigned to the first group and a second diversification spread credit is assigned to the second group, and the first diversification spread credit is greater than the second diversification spread credit.   
     
     
         16 . The non-transitory computer readable medium of  claim 9 , wherein the diversification spread credit is less than a maximum spread credit defined by a point of diminishing returns. 
     
     
         17 . An apparatus comprising:
 a memory configured to store data indicative of a plurality of products; and   a controller configured to define diversification groups based on correlation levels within the plurality of products and perform an analysis of the diversification groups, wherein the analysis of the diversification groups is performed at a computation speed faster that of analysis of the plurality of products individually,   wherein a diversification spread credit is determined based on the diversification spread of the diversification groups and a margin requirement is calculated based on the diversification spread credit.   
     
     
         18 . The apparatus of  claim 17 , wherein the processor is further configured to evaluate the plurality of products with respect to one another, and assign the correlation level to each of the plurality of products. 
     
     
         19 . The apparatus of  claim 17 , wherein the processor is further configured to assign a diversification class based on a product sector represented by each of the plurality of products. 
     
     
         20 . The apparatus of  claim 19 , wherein the diversification spread credit and the margin requirement are further based on the diversification class.